Lionel - I think this is double posted now - but everyone should make sure they take into account Burn's qualifier in his intro when considering this figure. He's saying Seattle is 32% overpriced - not that prices will fall that much...
The most likely scenario in these markets is that resale prices will fall, but not as much as we calculated, unless something terrible happens like mortgage rates spike or the economy enters a prolonged recession
I think this is probably accurate. I have looked at a lot of data on housing booms in different markets. I just don't see instances of markets giving back more than 30 or 40% of the amount they went up in a boom. And those are the extreme cases (e.g. LA in 91-96, Houston and Dallas during the early 80's oil boom) where there is some local economic trauma present. I see a recession coming, but I don't think it will be any worse for Seattle than it is for other markets, so I don't think we'll see the worst case on the downturn.
As I've said before, I truly do respect your opinion, deejayoh, I just have a firm belief that we're in uncharted waters with this run-up, and I wouldn't be shocked at a massive price drop. In order for the house I'm currently renting to make sense as a purchase, it would have to drop by at least 40%. In that sense, I don't worry much about how much prices will drop; as long as I can rent nice places at decent rates, I won't consider buying.
The waters aren't totally uncharted. The big aha moment for me was when I saw that 1990 appreciation in Seattle was 28.9%. 10% higher than the peak of this boom! That kind of put it into a different context for me.
I think the biggest unknown is how the mortgage issue will play out. It could be worse than the last runup due to that, but I also see lots of people forecasting foreclosure rates that absolutely make no sense - so I take the doom and gloom scenarios with a grain of salt.
The waters aren't totally uncharted. The big aha moment for me was when I saw that 1990 appreciation in Seattle was 28.9%. 10% higher than the peak of this boom! That kind of put it into a different context for me.
Unfortunately, I don't think that comparisons to previous booms on a basis of inventory or appreciation are all that constructive. The only way to see how much our boom differs from the past is to look at the relative proportion of mortgage types being used. Were interest only, negative amortization, or 100% finance loans more or less prevalent in past booms? The depth of our decline (from peak to trough) will likely be some function of the percentage difference in the types of stretch-loans being used.
sniglet -
you are like a broken record. yeah, I get that you think mortgages are big issue. I think they are an issue, but the impact is a big unknown.
Statistically speaking, inventory comparisons are indeed valid. I can predict the month to month Case Shiller index for Seattle from 2001 to today with 78% accuracy - primarily based on inventory.
Until you bring something more to the table than assertions that the structure of mortgages is important, all I hear is "blah blah blah" added to every thread about price direction.
The waters aren't totally uncharted. The big aha moment for me was when I saw that 1990 appreciation in Seattle was 28.9%. 10% higher than the peak of this boom! That kind of put it into a different context for me.
Unfortunately, I don't think that comparisons to previous booms on a basis of inventory or appreciation are all that constructive. The only way to see how much our boom differs from the past is to look at the relative proportion of mortgage types being used. Were interest only, negative amortization, or 100% finance loans more or less prevalent in past booms? The depth of our decline (from peak to trough) will likely be some function of the percentage difference in the types of stretch-loans being used.
Look, there are very few fundamental laws of business. Here are two of them.
1) Nobody can predict the future.
2) Use the past trends to predict future events.
In short, anyone who says we know what's happening next year because of what happened in 1991, 1931, or 1812 is only guessing. Likewise, anyone who discounts past performance because 'times are different' is also making a mistake.
I should clarify my earlier comment w/r/t inventory models - I think you can get a pretty good sense of direction from that approach, but with any statistics based approach - there are always "outliers" , so it has it's limits. It's an indicator, not a predictor.
But I have to agree w/RCC's point #2. History is the best guide we have, but many ignore it. On the way up, the bulls were saying "it's different this time! there won't be a crash". Now that many markets are headed down, the bears are saying "it's different this time! the crash is going to last forever!". Those just sound like different flavors of hyperbole to me.
Comments
I think this is probably accurate. I have looked at a lot of data on housing booms in different markets. I just don't see instances of markets giving back more than 30 or 40% of the amount they went up in a boom. And those are the extreme cases (e.g. LA in 91-96, Houston and Dallas during the early 80's oil boom) where there is some local economic trauma present. I see a recession coming, but I don't think it will be any worse for Seattle than it is for other markets, so I don't think we'll see the worst case on the downturn.
I think the biggest unknown is how the mortgage issue will play out. It could be worse than the last runup due to that, but I also see lots of people forecasting foreclosure rates that absolutely make no sense - so I take the doom and gloom scenarios with a grain of salt.
Unfortunately, I don't think that comparisons to previous booms on a basis of inventory or appreciation are all that constructive. The only way to see how much our boom differs from the past is to look at the relative proportion of mortgage types being used. Were interest only, negative amortization, or 100% finance loans more or less prevalent in past booms? The depth of our decline (from peak to trough) will likely be some function of the percentage difference in the types of stretch-loans being used.
you are like a broken record. yeah, I get that you think mortgages are big issue. I think they are an issue, but the impact is a big unknown.
Statistically speaking, inventory comparisons are indeed valid. I can predict the month to month Case Shiller index for Seattle from 2001 to today with 78% accuracy - primarily based on inventory.
Until you bring something more to the table than assertions that the structure of mortgages is important, all I hear is "blah blah blah" added to every thread about price direction.
Look, there are very few fundamental laws of business. Here are two of them.
1) Nobody can predict the future.
2) Use the past trends to predict future events.
In short, anyone who says we know what's happening next year because of what happened in 1991, 1931, or 1812 is only guessing. Likewise, anyone who discounts past performance because 'times are different' is also making a mistake.
But I have to agree w/RCC's point #2. History is the best guide we have, but many ignore it. On the way up, the bulls were saying "it's different this time! there won't be a crash". Now that many markets are headed down, the bears are saying "it's different this time! the crash is going to last forever!". Those just sound like different flavors of hyperbole to me.